When business partners spend time developing a business, they each gain insights, experience and connections to suppliers and customers that are valuable to the business. Naturally, if one partner left the business, she would be able to use all of the resources and information she had gained to start her own competing enterprise. Alternatively, a partner could use this information to make side deals while remaining a partner. The remaining partners have an interest in preventing this kind of competition, and as a result, many partnership agreements include covenants not to compete. However, these covenants are not always enforceable to the extent the partners wish.

Partner Fiduciary Duties

During the partnership, each partner owes the others fiduciary duties by virtue of the partner relationship. These duties include a duty of loyalty, which means the partners should not take actions in which there is an economic conflict between the partnership and themselves personally. This would essentially prevent a partner from directly competing with the partnership or taking an opportunity from the partnership. These duties are inherent in the legal concept of a partnership, but a partnership agreement could both make this more explicit and create special carve-outs in which competition is allowed. An example would be if a partner owned a minority of shares in a competitive enterprise.

Absolute vs. Reasonable Restrictions

Restrictions on competition once a partner has left the business are more difficult because once the partner relationship ends, the fiduciary duties end as well. Absolute restrictions on competition, such as ones that would prevent a former partner from ever engaging in a similar business in any location, are looked upon with disfavor by the courts of many states. Instead, restrictions should be reasonable in terms of time and geographic scope. For example, a non-compete agreement that prevented a former partner from working in a directly competitive business within a 20-mile radius for two years would be more reasonable than one that prevented the former partner from competing within the whole state for 10 years.

Trade Secrets and Non-Compete Agreements

Related to and supporting non-compete agreements is the concept of trade secrets, which are pieces of private information that give a company a competitive advantage. Non-compete agreements can be more restrictive in scope and duration when they relate to the use of trade secrets in the competitive enterprise. For example, it is generally acceptable for a former partner to set up a competing business and advertise for the same customer base as his former partnership. However, if he takes a customer list from the previous enterprise and directly solicits those customers to his new company, this could be considered a misappropriation of trade secrets. A non-compete agreement should use trade secrets and confidential information to support the enforceability of the covenant.

Working With Partnership Clients

Especially in professional partnerships, in which the partners are doctors, accountants or attorneys, the partners develop personal relationships with clients and will want to take those clients with them when they leave the partnership. This is competition, which the partnership is, technically, unable to restrain because it would unnecessarily restrict the choices of the consumer. However, the partnership can require that the departing partner pay a fee for the clients she takes with her. A formula calculating the fee should be agreed upon in the non-compete agreement or elsewhere in the partnership agreement.

About the Author

Kevin Doran has been a writer and editor since 2009 whose work has been published in the "Southwestern Journal of International Law." He received a BA in Classics from USC and a JD from Southwestern Law School and is currently pursuing an MA in History at Western New Mexico University.